Posts in Chancery

Chancery Dismisses Claim for Breach of Fiduciary Duty Where Parties’ Commercial Relationship Was One of Ordinary Care

Nieves v. Insight Building Co., LLC, C.A. No. 2019-0464-SG (Del. Ch. Aug. 4, 2020)

The Court of Chancery used an unlikely vehicle — a dispute over stormwater drainage — to further explain the limits of common law fiduciary duties. Plaintiffs/Homeowners experienced drainage issues and brought several claims against their builder, as well as the developer (“Developer”) from which the builder had purchased lots. One such claim was that Developer had breached a fiduciary duty to Homeowners, even though Plaintiffs did not purchase their lots directly from Developer or otherwise have a contractual or commercial relationship with Developer. Plaintiffs/Homeowners alleged Developer “owes a common law fiduciary duty … because Plaintiffs reposed a special trust in and reliance on the judgment of the developer.” (internal citations omitted.) More ›

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Chancery Holds That Management Does Not Have Unilateral Authority to Preclude a Director From Obtaining the Company’s Privileged Information

In Re WeWork Litig., Consol. C.A. No. 2020-0258-AGB (Del. Ch. Aug. 21, 2020)

In October 2019, The We Company’s (the “Company”) board of directors established a special committee (the “Special Committee”) to evaluate a potential transaction wherein SoftBank, the controlling shareholder, would acquire majority economic ownership and voting control of the Company. When SoftBank terminated the transaction, the Special Committee filed this action on behalf of the Company alleging that they had breached their contractual obligations to use reasonable best efforts to purchase $3 billion of the Company’s stock in a tender offer. More ›

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Chancery Holds Statutory Rights to Inspect Books and Records of a Delaware Corporation are Subject to the Internal Affairs Doctrine and Governed Exclusively by Delaware Law

JUUL Labs, Inc. v. Grove, C.A. No. 2020-0005-JTL (Del. Ch. Aug. 13, 2020)

Stockholder inspection rights are a core matter of the governance of a corporation. This decision holds that, pursuant to the internal affairs doctrine, inspection rights for a stockholder of a Delaware corporation are governed exclusively by Delaware law, not by laws of other jurisdictions, regardless of where a company’s principal place of business is located. More ›

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Chancery Dismisses Caremark Claims Against Metlife Board

In re Metlife Inc. Derivative Litigation, Consol. C.A. No. 2019-0452-SG (Del. Ch. Aug. 17, 2020)

Shareholders seeking relief for alleged harm to a Delaware corporation must comply with Delaware’s pre-suit demand requirement by either making a demand on the board of directors to take action respecting the potential claims, or initiating suit themselves and adequately pleading facts excusing pre-suit demand as futile. More ›

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Chancery Denies Sellers’ Request for Dismissal, Finding That Fraud Claims Were Timely Filed and Properly Pled

Agspring Holdco, LLC v. NGP X US Holdings, L.P., C.A. No. 2019-0567-AGB (Del. Ch. July 30, 2020)

This opinion concerns a buyer’s attempt to plead fraud in connection the acquisition of a business. The Court denied in the main the defendants’ motion to dismiss the fraud claims brought in connection with private equity firm American Infrastructure Partners’ (the “Buyer”) $300 million acquisition of Agspring LLC (the “Company”), which was then almost entirely owned by NGP X US Holdings, LLP (“NGP”), another private equity firm.  More ›

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Chancery Determines Validity of LLC Ownership Following Fraud and Deceit in Cross-Border Control Dispute

Lynch v. Gonzalez, C.A. No. 2019-0356-MTZ (Del. Ch. July 31, 2020)

Disputes over control of a Delaware limited liability company can turn on rigorous fact-finding efforts by the Court of Chancery where issues of witness credibility may be paramount. As this decision illustrates, the Court will not permit trickery or misrepresentations to prevail in a control dispute, nor will it apply the doctrine of unclean hands to permit an undeserved windfall or countenance a fraudulent scheme. More ›

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Chancery Rejects Bid to Jettison USACafes and its Holding That, Absent Agreement to the Contrary, the Controllers of a Corporate General Partner Owe Fiduciary Duties

Fannin v. UMTH Land Development, L.P. (In re: United Development Funding III, L.P.), C.A. No. 12541-VCF (Del. Ch. Jul. 31, 2020).

The Court of Chancery has concluded that in certain situations, equity will, by default, impose fiduciary duties upon a corporate relationship. This decision rejects on stare decisis grounds an attempt to overturn longstanding precedent in this area. More ›

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Chancery Denies Books and Records Request From Indirect LLC Interest Holder That Assigned its Rights Prior to the Demand and the Action

SolarReserve CSP Holdings, LLC v. Tonopah Solar Energy, LLC, C.A. 2020-0064-JRS (Del. Ch. Jul. 24, 2020)
Describing the case as deja vu, the Court of Chancery dismissed Plaintiff’s second attempt to enforce alleged rights related to Defendant/Company. See SolarReserve CSP Holdings, LLC v.  Tonopah Solar Energy, LLC, C.A. 2019-0791-JRS (Del.  Ch. Mar. 18, 2020) (“SolarReserve I”). The Company was formed to develop a solar power plant in Nevada, but the plan never came to fruition. More ›

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Chancery Dismisses Complaint Challenging Dilution for Lack of Standing and Failure to State a Claim

Hindlin v Gottwald, C.A. No. 2019-0586-JRS (Del. Ch. July 22, 2020)

The plaintiff, a minority investor (“Plaintiff”) in a Delaware limited liability company, Core Nutrition, LLC (the “Company”), brought an action for breach of fiduciary duties and certain provisions of the Company’s LLC agreement (the “LLC Agreement”). The defendants in the action were three individual members of the Company’s board of managers (“Defendants”). Defendants moved to dismiss Plaintiff’s complaint under, inter alia, Court of Chancery Rule 12(b)(6) for failure to state a claim, and 6 Del. C. §§ 18-1001–03 for lack of standing. More ›

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Chancery Addresses Burdens for Valuation-Related Books-and-Records Inspections, While Finding Defendant’s Asserted Lack of Records Supported Mismanagement-Related Inspection

Woods v. Sahara Enterprises, Inc., C.A. No. 2020-0153-JTL (Del. Ch. July 22, 2020)

This decision concerning statutory inspection rights under Section 220 of the Delaware General Corporation Law clarifies the requirements of a proper valuation purpose, involves a unique twist concerning a mismanagement-investigation purpose, and provides a helpful summary on the potential scope of books-and-records inspections. More ›

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Chancery Denies Derivative Plaintiff’s Motion to Compel Work Product Prepared by Oracle’s Special Litigation Committee

In re Oracle Corp. Derivative Litig., C.A. No. 2017-0337-SG (Del. Ch. July 9, 2020)

After investigating certain potential derivative claims arising out of Oracle Corporation’s acquisition of NetSuite, Inc., and after trying unsuccessfully to settle those claims, Oracle’s Special Litigation Committee (“SLC”) agreed that permitting a derivative plaintiff to pursue those claims was in Oracle’s best interests. This opinion concerns the lead derivative plaintiff’s subsequent motion to compel, which sought the production of forty-two documents the SLC withheld on work product grounds. The documents at issue were the SLC’s counsel’s notes and memoranda of witness interviews, factual summaries prepared by the SLC’s counsel, counsel’s draft report to the SLC, and financial analyses and damages models prepared by or at the direction of the SLC’s counsel. The Court found that all forty-two documents were protected work product because they were created in anticipation of litigation in order to aid the SLC in connection with this action. In addition, the documents were afforded a higher degree of protection as opinion work product because they also reflected attorney thoughts and impressions. More ›

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Chancery Rejects Implied Covenant Claim for Failure to Prove that, Had the Issue Been Negotiated, Both Parties Would Have Agreed

Roundpoint Mortgage Servicing Corp. v. Freedom Mortgage Corp., C.A. No. 2020-0161-SG (Del. Ch. July 22, 2020)

To establish an implied contractual obligation pursuant to the implied covenant of good faith and fair dealing, a party must prove that, even though the contract does not state the term at issue, the parties would have agreed to it had they thought to negotiate it at the time of contracting. Here, the Court of Chancery post-trial denied an acquirer’s implied covenant claim even though the result arguably resulted in unfairness from a financial point of view to the acquirer. As illustrated by this case, unfairness alone to one party does not necessarily prove that both parties would have agreed to the implied term had they thought to negotiate about it. More ›

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Chancery Certifies Interlocutory Appeal for Determination of Impact of Remote Proceedings on a Party’s Due Process Rights

Forescout Tech., Inc. v. Ferrari Grp. Holdings, L.P., C.A. No. 2020-0385-SG (Del. Ch. July 14, 2020)

In the midst of this global pandemic, the Court of Chancery certified an interlocutory appeal to the Delaware Supreme Court to address two unique issues presented by COVID-19: (i) whether the Court could rightly decide to accept trial testimony remotely; and (ii) whether the Court had discretion to decline to compel a witness to travel to Delaware so that the witness may be cross-examined in-person without infringing upon the opposing party’s due process rights. More ›

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Entire Fairness Standard Applies Where Controller Has Substantive Discussions with Minority Stockholders before Agreeing to MFW Protections

In re HomeFed Corporation Stockholder Litigation, C.A. 2019-0592-AGB (Del. Ch. July 13, 2020)
This case illustrates that the Court of Chancery will apply the entire fairness standard to review a squeeze-out merger by a controller, if the controller engages in substantive economic discussions before the company has enacted the procedural protections outlined in Kahn v. M & F Worldwide Corp, 88 A.3d 635 (Del. 2014) (“MFW”) that would permit business judgment review. In this case, Jefferies Financial Group Inc. (“Jefferies” or the “Controller”), which owned 70% of HomeFed Corporation (“HomeFed”), acquired the remaining shares of HomeFed in a share exchange in which each HomeFed minority shareholder received two Jefferies shares in exchange for one of its HomeFed shares (the “Transaction”). A HomeFed director originally proposed the 2:1 share exchange to Jefferies in September 2017, and Jefferies subsequently discussed the share exchange with HomeFed’s second largest shareholder Beck, Mack and Oliver, LLC (“BMO”). In December 2017, HomeFed’s board of directors (the “Board”) formed a special committee (the “Special Committee”) that had the exclusive power to evaluate and negotiate a potential transaction. When the parties were unable to agree to merger terms, the Special Committee “paused” its process in March 2018. Despite pausing the Special Committee, Jefferies continued to discuss a potential transaction with BMO for the next year.  More ›

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Chancery Values Non-Public Company with No Reliable Market-Based Data Using Discounted Cash Flow Analysis

Kruse v. Synapse Wireless, Inc., C.A. No. 12392-VCS (Del. Ch. July 14, 2020)

This case illustrates how appraisal works outside of the public market context when a lack of data hinders a reliable valuation. Here, stockholder William Richard Kruse (“Kruse”) sought appraisal of his shares of SynapseWireless, Inc. (“Synapse”), a privately-owned corporation. McWane Inc. (“McWane”) acquired Synapse in two rounds of investments: McWane, first, acquired a controlling interest in 2012, and, then, acquired the remaining Synapse shares in 2016 in a cash-out merger (the “Merger”). As part of the 2012 transaction, McWane gained the right to purchase newly issued Synapse shares at a price set by the 2012 acquisition. Synapse had disappointing performance after the 2012 merger, posting less than half of the projected revenues used to calculate the 2012 merger price. To mitigate Synapse’s poor performance, McWane provided loans and purchased Synapse shares at the price set by the 2012 merger. For example, in 2014, McWane bought $31 million of shares at $4.99 per share to keep Synapse afloat, and to increase McWane’s ownership of Synapse to realize tax benefits. More ›

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